Cenvat credit on exempt final goods faces conflicting tribunal views, prompting reference to a Larger Bench.

Conflicting coordinate Bench views existed on whether Cenvat credit validly taken on inputs lying in stock, in process, or contained in finished goods must be reversed when the final product becomes exempt from duty. One line of authority treated such credit as indefeasible once properly availed, while another required reversal or recovery of credit relatable to inputs remaining in stock or work-in-process on the date of exemption. Because of this divergence, the Tribunal did not decide the substantive issue on merits and directed that the matter be placed before the President for constitution of a Larger Bench.

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Issues: Whether the credit taken on inputs lying in stock, in process, or contained in finished goods became reversible upon the final product being exempt from duty; and whether the matter should be referred to a Larger Bench because of conflicting coordinate Bench views.

Analysis: The Tribunal noted conflicting decisions of coordinate Benches on the effect of exemption of the final product on previously validly taken Cenvat credit. One line of authority treated such credit as indefeasible once validly availed, while the other held that credit relatable to inputs in stock or in process on the date of exemption was liable to reversal or recovery. In view of this divergence, the Tribunal did not decide the substantive tax issue on merits and found it necessary to seek a Larger Bench reference.

Outcome: The matter was directed to be placed before the President for constitution of a Larger Bench to resolve the issue.

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